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Hitting Its Sweet Spot

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Bermco Aluminum has withstood the tumultuous aluminum market and now looks to grow.

Dan Sandoval February 10, 2011

Lost amid the volatile fortunes of other nonferrous metals, aluminum has been enjoying improving market conditions. Among the companies capitalizing on this upward trend is Bermco Aluminum, a Birmingham, Ala.-based owner and operator of a secondary aluminum smelter and a scrap processing facility.

The company’s origin can be traced back to the 1920s, when it began as a scrap iron collector operating in the Birmingham area. Bermco flourished and, by the 1960s, grew to become one of the larger scrap metal processors in the South. In the 1970s, Bermco made the strategic decision to integrate vertically into the specification alloys business.

As the company became acclimated to the alloys business, Bermco’s direction shifted away from the ferrous market. And, by the 1990s, the company had fully exited the ferrous business to concentrate on aluminum.

The decision to focus on aluminum was a strategic move, says Steve Weinstein, president and CEO of Bermco. The capital expenditure required to remain up-to-date in the secondary alloys business made it too difficult to reinvest in the ferrous business, Weinstein says, “So we made a choice.”

In addition to handling aluminum scrap, Bermco also opened and operated a secondary smelter.

FIXED FOCUS

Narrowing its focus on aluminum has provided challenges and opportunities for Bermco. As a company that operates a rotary furnace, Bermco can process lower-yield items and also can recycle its customers’ by-products and toll them back to a viable material, which results in significant profits for the company, Weinstein says. The rotary furnace has improved the company’s operational efficiency and has allowed it to process its customers’ production scrap, returning the metal units to them.

The company continues to invest in its operations to ensure that Bermco remains a good neighbor. Long before it was mandated by law, Bermco Aluminum says it was one of the first secondary aluminum smelters to comply with the maximum achievable control technology (MACT) standards under the Clean Air Act. The company also recently spent close to $1 million upgrading its environmental controls.

Counterbalancing the company’s various opportunities are a number of challenges, especially as an independent smelting operation. Weinstein notes that the biggest challenges involve selling material and determining price. “Whether we are buying raw materials or selling our product, the overriding question is always ‘What’s your price?’”

Although the company partly bases its operations on the value proposition, “Clearly, if price is the only factor, a company is highly vulnerable,” Weinstein adds.

REGAINING STRENGTH

With North America’s secondary alloys business relying heavily on the automotive industry, the decline in this sector during the recession has created challenges. “When automotive is good, life is good,” Weinstein says. “When we have a 2008-2009, I’d rather not even think about it.”

As painful as that two-year period was, Weinstein says he is still bullish on the long-term prospects of the aluminum industry. Looking at a myriad of trends that contribute to the industry’s health, including population growth, the economic recovery and finite natural resources, it’s hard not to be bullish, he adds.

“Strictly as a subjective opinion, I am bullish that the U.S. economy, and especially the automotive sector, is in the midst of a recovery.”

He continues, “While we are optimistic, we also are cautious. I am particularly proud of the fact that the company is currently producing and selling at mid-2008 levels, with 30 percent fewer employees. Our people understand that only the lean will survive.”

While far from Detroit, often considered the home of the U.S. auto industry, the South, including Alabama, is home to a number of auto manufacturing plants. In addition to being close to some of the company’s clients, Weinstein says of the company’s location, “Operating costs are reasonable, and there is generally a pro-business climate.”

During the middle of the economic recession and declining auto sales, Bermco began diversifying its operations, Weinstein says. “When times got very tough in 2009, we went back into the business of supplying deoxidizing aluminum to the domestic steel industry,” he says. However, these alternate end markets have not become a core part of the company’s business.

COMPETITIVE ADVANTAGES

While Bermco competes with a host of other secondary aluminum smelters, the company has differentiated itself by also owning and operating its own aluminum scrap yard. However, managing that operation also poses challenges and often requires a delicate approach within the marketplace. “The fact is that our aluminum scrap operation is substantially geared to support the smelter. The company made a policy/marketing decision years ago not to compete with the local scrap dealers who were our primary supply base,” Weinstein says.

“Now, the dynamics have changed,” he continues. “Almost any dealer can sell into the export market, or anywhere in the United States. So we have begun to re-assess buying directly from small dealers in our trade area.”

But, just as Bermco has sought to capitalize on the proximity of its consumers as well as to grow its supply network, the company’s competitors have increased their presence in the region, including in Bermco’s home state of Alabama. “We are buying a commodity and selling a commodity,” Weinstein says. “When we buy our feedstock, we are competing against every other secondary smelter in the United States, any number of self-alloying casters, rolling mills and a strong export market.”

He adds, “Other than meeting the market, we have to be sure that our suppliers are paid fairly for what they deliver to us, and most importantly, [that] they are paid on a timely basis. Most of our scrap suppliers are paying cash for what they buy, so they expect us to pay them on time, every time.”

As for competition from outside North America, Weinstein sees it becoming even more aggressive. “On the sales side, and this is only my opinion, it seems that it is only a matter of time before Asian competitors, who are buying the same scrap units we buy, begin selling alloys back into the U.S. market.” He adds, “That is why, above all else, we concentrate on operational efficiency. Our management group has a mantra: We will do whatever it takes to be the last U.S. smelter standing.”

Married with increased competition for in-bound material and for end markets are quality issues, which are now front and center in the recycling industry. “We make sure we manage our raw material and our melt to ensure that we meet their requirements,” Weinstein says. “They say jump, and we ask ‘How high?’”

To meet these needs, Bermco consumes prompt and industrial scrap as well as obsolete scrap from various dealers and brokers. While the company has not been open to street trade for a number of years, it is now reconsidering the policy.

Recognizing the importance of increasing efficiency, Bermco Aluminim is planning to undergo a significant shift in its operations. The company is in the process of bringing its aluminum smelter and aluminum scrap yard together at a single location.

To accomplish this, the company has been in location negotiations with the city of Lincoln, Ala. While Bermco has targeted Lincoln, it continues to hold discussions with several other Alabama cities. The company hopes to have its new location determined by March 2011 and construction and operation plans finalized during the second quarter. Bermco says it would like to break ground on the new facility by the summer of 2011 and be operating at the new site by the second quarter of 2012. When all is said and done, the company says it expects to have roughly 150,000 square feet under roof on 20 acres of land.

Weinstein says Bermco began looking at consolidating its operations in 1990. While the planning stage has taken 20 years, the reasons for consolidating the locations remain the same—maximizing productivity and lowering operating costs.

“Without getting into details, if we merely maintain our current volume levels, we will reduce our current operating costs by more than 2 cents per pound,” he says.

In addition to the new site, Bermco has been looking at installing modern, energy-efficient equipment. “We will attempt to have the most modern, energy-efficient processing, melting and combustion equipment available,” Weinstein says. “Our consulting engineers are active in Europe and Asia. That is why we are so confident in our ability to slash our costs per pound.”

While Bermco’s goal is to increase its volume, the company says it feels that it is in the proverbial sweet spot currently. Following the relocation, Weinstein says, “We will be even more competitive. If our volume increases, great; if we are merely more profitable at our current levels, great. Either way, this move is right for Bermco at this time.” He adds, “I have no expectation or desire to expand this company out of our existing area of control. This move will lay a solid foundation for our next generation or it will make the company more marketable. In either case, our time is now.”

The author is senior and Internet editor of Recycling Today and can be contacted at dsandoval@gie.net

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